The Succession Window Is Open. It Will Not Stay That Way.
(I’m Mike Gordon, independent recruiter and transition consultant. I help match successful advisor-owners with better RIAs, BDs, and OSJs. You work with me when you want an experienced advocate to guide you through firm research, vetting, and negotiations. I’m the Advisor’s Advisor.)
If you’re an advisor under 45, you likely don’t remember being in this business in 2008. I would suggest, though, that even the ranks of advisors who endured that terrible market cycle have grown a bit comfortable riding the wave of the last ~18 years of up-and-to-the-right.
The average advisor I talk to fits a common profile (not just in transitions, but in business life generally):
50-60+ years old
Lots of gas left in the tank
Revenue is up
They enjoy their clients. Clients are happy, too.
Work/life balance is manageable, if not enjoyable.
Business is good.
All good things, but when we’re looking at the next 10 years and the coming wave of exits, that’s what concerns me.
Valuations & Calm Seas
We have had an extraordinary run. Seventeen to eighteen years, where it has been very hard to be wrong as a financial advisor. Markets have been so favorable that advisors who were not really growing organically, not adding new clients, not building the business, have still seen revenue climb every year.
My canary-in-the-coal-mine assessment: we have a lot of advisors (especially those 60+ years old) who would be thoughtfully making their exit plans but may be procrastinating. The result is a cohort of advisors who are effectively in active retirement without having decided to retire. They are doing what they love, with the clients they love, and the business is running itself. Nobody is calling to complain about a thirteen percent return.
What Will Change in the Next Downturn
When conditions normalize, whether through a market correction, a compliance event, a health issue, or just the accumulation of years, the dynamic reverses quickly.
I don’t need to explain the change in quality of life for advisors when we hit a real downturn. Rapid increase in client calls, service demands, etc. Clients start calling. Service demands go up. The work that markets have been absorbing suddenly lands back on the advisor's desk. My forecast: lots of senior advisors who feel they still have plenty left in the tank will suddenly feel they have less and start preparing for an exit.
Follow the mental math with me:
46% of advisors plan to retire in the next 10 years.
A market event could add to the strain and push this group to sell sooner.
Valuations: supply increases rapidly even as buyers become more selective.
Leverage shifts heavily in buyers' favor.
Valuations today, driven largely by PE multiples and capital that must be deployed, will start to shift back toward supply and demand.
Kyle Campbell, a CVA with nearly 500 transactions in this industry, put it plainly in our recent conversation: over the next two to three years, the near-term picture stays favorable. PE still has dry powder, and premiums are holding. However, over the next seven to ten years, the smart money at the top will stop paying what they have been paying when they no longer have to. At this point, it’s been a race to scale that has driven aggressive multiples, but many of these aggregators are starting to achieve the scale they need to get picky.
Is Timing Your Best Leverage?
I'll tell you firsthand from my work with advisor transitions that include a sale component–or at least a future-minded succession. Multiples are still strong, but the criteria have gotten more selective. There absolutely is a changing tide.
What does this mean for you? No one can predict the future. I also certainly hope we have another 17-18 years of bull markets, but given what we do know about industry trends, I think there’s a strong case to explore a sale while conditions are good.
Now, if the thought of selling now sounds foreign and offputting, I’ll leave you with a few thoughts:
You have leverage now. Forced sales never benefit the seller. You have time to explore your options, and no one can force you to sell. You can field seller-friendly offers, and politely decline any that aren’t worth it to you and your team.
Research is free. For the advisors I help explore their options, there is no cost. Should you decide to transition to a new BD or RIA, I’m compensated by the firm you join. I’ve been doing this for 15 years. My process saves you time creating, refining, and vetting your short list of firms.
Selling does not mean retiring. It means monetizing. Yes, I’m well aware that some advisors (many of the ones I work with) can’t imagine life without being at the helm of their business, but I think the financial impact is significant enough to warrant weighing options. You don’t have to be done working.
Choose Your Exit Adventure
To bring this home, consider two scenarios. (Again, no one can predict the future, but I see this as a very possible scenario over the next 5 years.)
Scenario 1: You ride the wave of good market conditions as long as you can. Life is good. Eventually, when something happens that makes you feel like you have less in the tank, you have less leverage to maximize your exit and place your team in a great environment.
Scenario 2: You explore your options while you have great leverage. You can patiently receive and filter potential fits. You have leverage over both the economics and the culture-fit value prop from an acquiring firm. If/when you find a great landing spot, you have more left in the tank to help steady your team and your clients in a new environment.
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I’m meeting more advisors who are seeing the merits of scenario 2. Again, the leverage is yours right now. Exploring the buyer pool is free, valuable, and no one can make you say yes. I’m taking lots of these calls right now. Are you ready?
Click here to schedule a time with me.
— Michael Gordon
Independent Recruiter + Transition Consultant